The Ledger
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Lewinsohn: Direct lending shifted from overhyped to underrated
“Direct lending, which is a big part of what we do now, got very hyped up. Everyone's saying, oh, you have to do it, whether it's allocators, investors, GPs. And now has gone all the way to the point that people are so afraid of it. They miss what's great about…”
Lewinsohn: Software concentration is the biggest threat to direct lending portfolios
“The biggest threat is industry concentration in software going to impact portfolios in a way that wasn't expected when they were under it.”
Lewinsohn: Chinese expansion will drive severe chemical market overcapacity by 2030
“If you look at the amount of ethylene and propylene that they're bringing on, and then go to 20 30 and shut all of the European and Japanese capacity, in 2030, you'd have more over capacity than you have now.”
Lewinsohn: Wall Street is running out of places to hide credit residuals
“We think that Wall Street is getting a little short on places to stick the stumps. They're coming up in special situations funds. They're coming up in interval funds. They're coming up in places that people may not appreciate what happens when you're not getti…”
Lewinsohn: Private asset-backed risks will hurt specific funds, not the global economy
“I don't think that it would create systemic problems. Just like every hedge fund in the world wants to call a recession constantly because they're desperate for the volatility. Everyone wants to constantly say, what's the next systemic thing? Because the impac…”
Lewinsohn: 'Good company, bad balance sheet' distressed opportunities rarely exist anymore
“And frankly, and this is part of why we do a lot more than distressed at diameter, really kind of the secular decline of the distressed debt industry. Because if you think about what makes distressed interesting is you want to buy a business that's going throu…”
Lewinsohn: Outside recessions, most distressed companies are fundamentally bad businesses
“And we think that most companies that end up in distress outside of recessions are bad businesses. And generally investing in bad businesses is not a good business for you.”
Lewinsohn: Buying low-quality distressed debt early in market sell-offs is a mistake
“Our view is at the beginning of a sell off, the worst thing you could do is buy the lowest dollar price, crappiest companies. If you were a company that traded, let's say you were an oil company that was trading at 75 in January of 2020 and was trading at 25 i…”
Lewinsohn: Software accounts for 30% of direct lending portfolios
“You do have 30% of direct lending in the software space.”
Lewinsohn: AI agents make too many errors for enterprise prime-time deployment
“Agents are working well doing a lot of things, but they're 98%. They make mistakes. AI's not there yet for prime time, so we can't predict where it's going to go.”
Lewinsohn: Hyperscaler-guaranteed amortizing debt is the data center gold standard
“The gold standard is financing a box, a data center that is being used by a hyperscaler, being guaranteed by a hyperscaler that amortizes.”
Lewinsohn: Non-discretionary moves drive 3 million of 4 million annual home sales
“We think that the non-discretionary moves are about three million of the four million. Which means we only have a million homes per year where people are saying, hey, I got a better job in Cincinnati. I'm taking it.”
Lewinsohn: Credit Hedge Funds Mistakenly Try Playing Private Equity Turnaround
“We think that too many hedge funds who did credit thought that all of a sudden they were in private equity and they can improve businesses. We don't think that that's our skill set. Frankly, we think if we think we can improve it probably means that other peop…”
Lewinsohn: Hedge funds must trade volatility, not absorb it
“A hedge fund at its core is not supposed to absorb volatility. It's supposed to be able to trade volatility and make money even in periods of volatility.”
Lewinsohn: Fed actions created the first syndicated rescue market in 2020
“Instead you had the first ever syndicated rescue market where thanks to the fed banks brought rescue deals for companies to sell to mutual funds and hedge funds.”
Lewinsohn: Central bank intervention shortens distressed debt cycles
“Now I think people who work at central banks want to avoid recessions really at all costs. And that means they throw everything at it to avoid it. And when we're in it, we just saw unprecedented act after unprecedented act. So cycles are short. So you're not g…”
Lewinsohn: Diameter views short positions as profit centers, not hedges
“And so our portfolio, we don't really think about shorts as hedges. We think about them as ways to make money in companies that no longer make money the way they used to.”
Lewinsohn: Public sentiment polls are completely irrelevant for investment decisions
“And what it really impacted for me is polls are not really relevant. In COVID, for example, we'd get all these polls, oh, people can't wait to return to cruises, or people are not going to go back to the office. I didn't pay attention to it at all.”
Lewinsohn: Leveraged loan quality dropped as high yield quality improved
“As high yield has become higher quality, levered loan market is often lower quality.”
Lewinsohn: RSA, Ivanti, McAfee, and Barracuda face syndicated loan distress
“RSA, Avanti, McAfee, Barracuda, they'll have their own issues going through LME.”
Lewinsohn: Hertz's post-bankruptcy crisis stemmed from Tesla residual value collapse
“Hertz had a problem coming out of their restructuring that they had too many Teslas. It wasn't only that people didn't want to rent Teslas. I think people found Tesla's interesting to rent. They're great cars. The problem was the residual value was much worse …”
Lewinsohn: Distressed debt's best opportunities come from sector microcycles
“What it means is the best opportunity for distressed has been micro cycles.”
Lewinsohn: US consumers and corporates have been historically under-leveraged
“Part of the reason we've been more bullish on the economy than some others over the last few years is the U.S. Consumer and the corporate have been historically under levered.”
Lewinsohn: US housing market is a coiled spring that must rebound
“We see housing as this coiled spring. It has to come back. There has to be more dynamic movement in the housing market.”
Lewinsohn: Building products earnings expectations have capitulated, setting up outperformance
“Building products in particular, earnings expectations have really capitulated in 26, which could create interesting environment for outperformance.”
Lewinsohn: Telecom has been Diameter's most active and profitable microcycle since COVID
“We've seen that telecom has been the microcycle that we've prosecuted the most since COVID, that's been incredibly profitable, and with limited bankruptcies.”
Lewinsohn: Pure bankruptcy knowledge edge in distressed debt has competed away
“Distressed at investing was such a frontier, say at least 25 years ago, even before the financial crisis. You didn't need to really care if it was a sock company or a steel company. You knew bankruptcy. The other guys didn't. That has been competed away and is…”
Lewinsohn: Credit losses correlate with over-relying on capital structure seniority
“Will we invest in a business that we don't think is amazing because we think it's good enough where we are in the capital structure? Certainly. But if I look back at places where we've lost money and credit, do they line up in those type of situations more oft…”
Lewinsohn: Legacy cable faces market share erosion from fiber and fixed wireless
“What we think is going to happen in telecom is more and more legacy, perhaps coaxial companies are going to be impacted by not only fixed wireless share, but fiber as it get laid all over the country. And that fixed wireless is like a transitionary technology …”
Lewinsohn: Diameter avoids single-product and single-payer healthcare businesses
“And so we tend to stay away from things that are single product or single payer. We like it. If there's a mix of commercial Medicare and Medicaid, we like larger businesses.”
Lewinsohn: Credit is governed strictly by contract law, not fiduciary duty
“In credit, that doesn't really exist. The way the law has worked is, it's a contract. It's not being analyzed under fiduciary duties law. It's not being analyzed under what the securities laws say about fiduciary duties. It's contract. What does the contract l…”
Lewinsohn: Creditor cooperative agreements surged in popularity over the last 18 months
“One thing you're seeing is co-ops, which are cooperative agreements between creditors to say, we're not going to do a deal with the company alone, neither should you, have really come into vogue over the last 18 months.”
Lewinsohn: Repeat players receive different treatment in credit restructuring
“If you're a repeat player, then the market treats you differently than if you're a one-time player.”
Lewinsohn: Diameter avoided packaging investments because Americans are consuming less food
“And that's why we haven't made a lot of recent investments in packaging is it seems that Americans are using less, right? Buying less food, even with not on GLP ones.”
Lewinsohn: Unemployment among college graduates is currently nearly 9%
“Today, just sitting here with AI, not even really ready for prime time, and you have very high, I think almost nine percent unemployment from college grads.”
Lewinsohn: Credit investors must obsess over downside risk instead of upside return targets
“One, you have to constantly be thinking about the downside protection in what you invest in. So instead of just always looking, a lot of people say, oh, I want to invest in something I can make 20% in. But you have to obsessively say, if the macroeconomic cont…”
Lewinsohn: Tracking cyclical shifts in company narratives is critical for security selection
“Understanding investing as narrative, not just for the long term about how a company will improve, or how, you know, Amazon will go last mile and transform the way we do things. But actually, within the macroeconomic cycle, how the narrative around a company w…”
Lewinsohn: Hertz is primed to perform very well post-pandemic
“Today, Hertz is primed to do very well because they have far fewer cars and people want to travel like it's, you know, the end of the world.”
Lewinsohn: Most Investment Firms Suffer Friction Between Traders and Analysts
“In most instances, traders and analysts do not like each other. Or at the very least exist with like a cold piece because the traders believe that the analysts are eggheads who want to work at a think tank and can't really make money or can't really, if they m…”
Lewinsohn: Mean-reversion trading strategies fail during rapid technological disruption
“And a lot of trading only focused businesses eventually explode on those when the reversion to the mean doesn't work, particularly now where there's so much technological change that formerly stable industries become very different in a short period of time.”
Lewinsohn: Chasing illiquid yield in frothy markets destroys portfolio flexibility
“When markets get very frothy, illiquids become in vogue, and they end up not returning a lot. If all of a sudden you're being pitched a lot of nine percent illiquids, you maybe really want to realize that you're creating a situation where if the world changes,…”
Lewinsohn: Public markets heavily penalize illiquid post-bankruptcy reorganized equities
“There's really nothing worse to public equity markets than a reorganized equity that's less liquid than a regular equity that just went through bankruptcy and is a value stock.”
Lewinsohn: Corporate CEOs have inherent long bias that limits forecasting objectivity
“If I want to know maybe about auto technology, obviously she's the one to talk to, but she's long. That's the only way. And that creates a bias because if you own a company, if you manage a company, you think it's going to do well.”
Lewinsohn: Diameter caps direct lending software exposure under 10%
“We've spent a lot of time making sure that we have sub 10% of our direct lending business in that space”
Lewinsohn: Diameter avoids long-term residual risk in AI infrastructure financing
“We've not financed long-term residual risk. We think it's been too hard for us, but this is America. Everything can be trunched. We've invested at the top of the capital structure in an amortizing way.”
Lewinsohn: Fixed wireless drove 150% of US broadband growth last year
“It was a 150% of the growth last year in broadband across the country.”